DWS: ECB more determined in fight against inflation than markets expecteda

DWS: ECB more determined in fight against inflation than markets expecteda

December 16, 2022

ECB
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Martin Moryson, Chief Economist Europe at DWS, comments on yesterday's ECB meeting:

'As widely expected, the ECB is raising all three key interest rates by 50 basis points. Even though this is less than at the last two central bank meetings, the message the ECB is sending shows great determination: the statement that it intends to continue raising interest rates at a steady pace can only be interpreted as meaning that there will be two more steps of 50 basis points each - with significant upside risk.

According to its own forecasts, which are quite close to ours, the ECB does not expect a severe slump in economic activity over the winter, but only a mild recession. This makes further interest rate hikes possible. At the same time, the ECB forecasts that the inflation rate will fall only very slowly and even in 2025 will still be above the ECB's target value. Since the projections are always based on market expectations (and not the expectations of the ECB itself) regarding further interest rate steps, this means nothing other than that the ECB must convince markets of its resolve even further. Today, it has already gone quite some way down this path, to which the strong market reactions bear eloquent witness. Yields are rising, the euro is appreciating strongly, and equities are losing ground.'

 

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